UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ______________.

Commission File Number 1-32955

HOUSTON AMERICAN ENERGY CORP.

(Exact name of registrant as specified in its charter)

Delaware	76-0675953
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

801 Travis Street, Suite 1425, Houston, Texas 77002

(Address of principal executive offices)(Zip Code)

(713) 222-6966

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” or an “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	[  ]	Accelerated filer	[  ]	Non-accelerated filer	[X]
Smaller reporting company	[X]	Emerging growth company	[  ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	HUSA	NYSE American

As of May 14, 2019, we had 62,525,140 shares of $0.001 par value common stock outstanding.

HOUSTON AMERICAN ENERGY CORP.

FORM 10-Q

INDEX

		Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 (Unaudited)	3
	Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018 (Unaudited)	4
	Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 4.	Controls and Procedures	16
PART II	OTHER INFORMATION
Item 6.	Exhibits	16

2

PART I - FINANCIAL INFORMATION

ITEM 1 Financial Statements

HOUSTON AMERICAN ENERGY CORP.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2019			December 31, 2018
ASSETS
CURRENT ASSETS
Cash	$	446,380		$	755,702
Accounts receivable – oil and gas sales		189,692			136,042
Prepaid expenses and other current assets		117,913			66,381
TOTAL CURRENT ASSETS		753,985			958,125
PROPERTY AND EQUIPMENT
Oil and gas properties, full cost method
Costs subject to amortization		60,445,136			60,397,878
Costs not being amortized		2,458,892			2,456,499
Office equipment		90,004			90,004
Total		62,994,032			62,944,381
Accumulated depletion, depreciation, amortization, and impairment		(56,175,431	)		(56,082,902	)
PROPERTY AND EQUIPMENT, NET		6,818,601			6,861,479
Right of use asset		339,795			—
Other assets		3,167			3,167
TOTAL ASSETS	$	7,915,548		$	7,822,771
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	97,760		$	61,826
Accrued expenses		2,092			933
Short-term lease liability		87,812			—
TOTAL CURRENT LIABILITIES		187,664			62,759
LONG-TERM LIABILITIES
Lease liability		294,008			—
Reserve for plugging and abandonment costs		39,584			38,754
Deferred rent obligation		—			43,965
TOTAL LONG-TERM LIABILITIES		333,592			82,719
TOTAL LIABILITIES		521,256			145,478
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Preferred stock, par value $0.001; 10,000,000 shares authorized,
Series A Convertible Preferred Stock, par value $0.001; 2,000 shares authorized; 1,085 and 1,085 shares issued and outstanding, respectively; liquidation preference of $1,085,000		1			1
Series B Convertible Preferred Stock, par value $0.001; 1,000 shares authorized; 835 and 835 shares issued and outstanding, respectively; liquidation preference of $835,000		1			1
Common stock, par value $0.001; 150,000,000 shares authorized 62,425,140 and 62,425,140 shares issued and outstanding, respectively		62,425			62,425
Additional paid-in capital		73,040,628			73,084,009
Accumulated deficit		(65,708,763	)		(65,469,143	)
TOTAL SHAREHOLDERS’ EQUITY		7,394,292			7,677,293
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	7,915,548		$	7,822,771

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

HOUSTON AMERICAN ENERGY CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018

(Unaudited)

	Three Months Ended March 31,
	2019			2018
OIL AND GAS REVENUE	$	250,720		$	754,157
EXPENSES OF OPERATIONS
Lease operating expense and severance tax		149,227			263,285
General and administrative expense		249,951			447,073
Depreciation and depletion		92,529			96,710
Total operating expenses		491,707			807,068
Loss from operations		(240,987	)		(52,911	)
OTHER INCOME
Interest income		1,367			—
Total other income		1,367			—
Net loss before taxes		(239,620	)		(52,911	)
Income tax expense		—			—
Net loss	$	(239,620	)	$	(52,911	)
Dividends to Series A and B preferred stockholders		(57,600	)		(203,270	)
Net loss attributable to common shareholders		(297,228	)		(256,181	)
Basic and diluted loss per common share	$	(0.00	)	$	(0.00	)
Based and diluted weighted average number of common shares outstanding		62,425,140			59,460,101

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

HOUSTON AMERICAN ENERGY CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018

(Unaudited)

									Additional
	Preferred Stock				Common Stock				Paid-in			Accumulated
	Shares		Amount		Shares		Amount		Capital			Deficit			Total
Balance – December 31, 2017		2,070	$	2		59,260,101	$	59,260	$	72,482,303		$	(65,217,807	)	$	7,323,758
Issuance of common stock		—		—		250,000		250		(250	)		—			—
Series A and Series B Preferred Stock dividends paid		—		—		—		—		(65,850	)		—			(65,850	)
Stock-based compensation		—		—		—		—		52,349			—			52,349
Net loss		—		—		—		—		—			(79,911	)		(79,911	)
Balance – March 31, 2018		2,070	$	2		59,510,101	$	59,510	$	72,468,552		$	(65,297,718	)	$	7,230,346

									Additional
	Preferred Stock				Common Stock				Paid-in			Accumulated
	Shares		Amount		Shares		Amount		Capital			Deficit			Total
Balance – December 31, 2018		1,920	$	2		62,425,140	$	62,425	$	73,084,009		$	(65,469,143	)	$	7,677,295
Series A and Series B Preferred Stock dividends paid		—		—		—		—		(57,600	)		—			(57,600	)
Stock-based compensation		—		—		—		—		14,219			—			14,219
Net loss		—		—		—		—		—			(239,620	)		(239,620	)
Balance – March 31, 2019		1,920	$	2		62,425,140	$	62,425	$	73,040,628		$	(65,708,763	)	$	7,394,292

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

HOUSTON AMERICAN ENERGY CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018

(Unaudited)

	For the Three Months Ended March 31,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(239,620	)	$	(52,911	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and depletion		92,529			96,710
Accretion of asset retirement obligation		830			774
Stock-based compensation		14,219			25,349
Amortization of right of use asset		18,190			—
Changes in operating assets and liabilities:
Decrease/(increase) in accounts receivable		(52,650	)		(90,018	)
Decrease/(increase) in prepaid expenses and other current assets		(51,532	)		(37,916	)
Increase/(decrease) in accounts payable and accrued expenses		37,093			(51,045	)
Increase/(decrease) in operating lease liability		(20,130	)		—
Increase/(decrease) in deferred rent		—			(1,319	)
Net cash used in operating activities		(202,071	)		(110,376	)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for the acquisition and development of oil and gas properties		(49,651	)		(7,277	)
Net cash used in investing activities		(49,651	)		(7,277	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of Preferred Stock dividends		(57,600	)		(62,850	)
Net cash used in financing activities		(57,600	)		(62,850	)
Decrease in cash		(309,322	)		(180,503	)
Cash, beginning of period		755,702			392,062
Cash, end of period	$	446,380		$	211,559
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid	$	—		$	—
Taxes paid	$	—		$	—
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES
Conversion of convertible preferred stock to common stock	$	—		$	250

The accompanying notes are an integral part of these unaudited consolidated financial statements.

6

HOUSTON AMERICAN ENERGY CORP.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements of Houston American Energy Corp., a Delaware corporation (the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for a complete financial presentation. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included in the accompanying unaudited consolidated financial statements. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year.

These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes, which are included as part of the Company’s Form 10-K for the year ended December 31, 2018.

Consolidation

The accompanying consolidated financial statements include all accounts of the Company and its subsidiaries (HAEC Louisiana E&P, Inc., HAEC Oklahoma E&P, Inc., and HAEC Caddo Lake E&P, Inc.). All significant inter-company balances and transactions have been eliminated in consolidation.

Liquidity and Capital Requirements

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the issuance date of these consolidated financial statements. The Company has incurred continuing losses since 2011, including a loss of approximately $239,620 for the three months ended March 31, 2019. However, during 2018, the Company raised, net of offering costs, approximately $747,000 in its ATM offering, and substantially reduced its general and administrative costs, increased revenues, and generated approximately $361,000 from its operating activities, thereby mitigating going concern considerations. Further, as of March 31, 2019, the Company had a cash balance of approximately $446,000 and working capital of approximately $566,000.

The Company’s principal capital and exploration expenditures during 2019 are expected to relate to drilling an additional well on its Yoakum County lease and, possibly, on its Reeves County acreage. The operator in Yoakum County has committed to drill a second well during 2019 at an approximate cost to the Company of $325,000. The Company believes that it has the ability to fund its cost for such a well from cash on hand. The new operator of the Company’s Reeves County wells has not yet communicated definitive plans to drill an additional well on that acreage in 2019. If they proceed with drilling plan for an additional well, the Company may require additional capital to participate in the drilling of that well. The Company believes that it has sufficient cash on hand to fund its expected drilling operations and its operations for the twelve months following the issuance of these financial statements.

In the event that the Company requires additional capital to fund its share of costs for drilling wells during 2019, the Company expects that it would seek additional capital from one or more sources of additional sales of shares in its 2019 ATM Offering and private sales of equity and debt securities. However, there can be no assurance that the Company can secure the necessary capital to fund its share of drilling, acquisition or other costs on acceptable terms or at all. If, for any reason, the Company is unable to fund its share of drilling and completion costs, it would forego participation in one or more of such wells. In such event, the Company may be subject to penalties or to the possible loss of some of its rights and interests in prospects with respect to which it fails to satisfy funding obligations and it may be required to curtail operations and forego opportunities.

Accounting Principles and Use of Estimates

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing financial statements, management makes informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management reviews its estimates, including those related to such potential matters as litigation, environmental liabilities, income taxes and the related valuation allowance, determination of proved reserves of oil and gas and asset retirement obligations. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates.

7

Reclassifications

Certain amounts for prior periods have been reclassified to conform to the current presentation.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk include cash, cash equivalents and any marketable securities (if any). The Company had cash deposits of $0 in excess of the FDIC’s current insured limit on interest bearing accounts of $250,000 as of March 31, 2019. The Company also had cash deposits of $11,195 in Colombian banks at March 31, 2019 that are not insured by the FDIC. The Company has not experienced any losses on its deposits of cash and cash equivalents.

Loss per Share

Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted in common shares that then shared in the earnings of the Company. In periods in which the Company reports a net loss, dilutive securities are excluded from the calculation of diluted net loss per share amounts as the effect would be anti-dilutive.

For the three months ended March 31, 2019 and 2018, the following convertible preferred stock and warrants and options to purchase shares of common stock were excluded from the computation of diluted net loss per share, as the inclusion of such shares would be anti-dilutive:

	Three Months Ended March 31,
	2019		2018
Series A Convertible Preferred Stock		5,425,000		5,625,000
Series B Convertible Preferred Stock		2,320,556		2,487,222
Stock warrants		50,000		650,000
Stock options		4,978,832		7,512,165
Total		12,774,388		16,274,387

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). Under this new guidance, lessees will be required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of greater than twelve months. The guidance requires qualitative disclosures along with certain specific quantitative disclosures for both lessees and lessors. The ASU and its related amendments are effective for fiscal years beginning after December 15, 2018, with early adoption permitted, and are effective for interim periods in the year of adoption. The Company has adopted the new lease standard using the new transition option issued under the amendments in ASU 2018-11, Leases, which allowed the Company to continue to apply the legacy guidance in Accounting Standards Codification (ASC) 840, Leases, in the comparative periods presented in the year of adoption. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The Company evaluated the impact of this new guidance and reviewed lease or possible lease contracts and evaluated contract related processes. The Company adopted ASU 2016-02 effective January 1, 2019 and recorded an initial right-of-use asset and liability for its operating leases of approximately $357,985.

8

Recently Issued Accounting Pronouncements

The Company does not expect the adoption of any recently issued accounting pronouncements to have a significant impact on its financial position, results of operations, or cash flows.

Subsequent Events

The Company has evaluated all transactions from March 31, 2019 through the financial statement issuance date for subsequent event disclosure consideration.

NOTE 2 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Change in Accounting Policy

The Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, on January 1, 2018, using the modified retrospective method applied to contracts that were not completed as of January 1, 2018. Refer to Note 1 – Basis of Presentation and Significant Accounting Policies for additional information.

Exploration and Production

There were no significant changes to the timing or valuation of revenue recognized for sales of production from exploration and production activities.

Disaggregation of Revenue from Contracts with Customers

The following table disaggregates revenue by significant product type for the three-month periods ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019		2018
Oil sales	$	173,777	$	485,532
Natural gas sales		27,788		268,625
Natural gas liquids sales		49,155		—
Total revenue from customers	$	250,720	$	754,157

There were no significant contract liabilities or transaction price allocations to any remaining performance obligations as of March 31, 2018 or 2019.

NOTE 3 – OIL AND GAS PROPERTIES

During the three months ended March 31, 2019, the Company invested $49,651, net, for the acquisition and development of oil and gas properties, consisting of cost of development of U.S. properties of $47,258, net, principally attributable to acreage in Reeves County, Texas. Of the amount invested, the Company capitalized $2,393 to oil and gas properties not subject to amortization and capitalized $47,258 to oil and gas properties subject to amortization.

Geographical Information

The Company currently has properties in two geographical areas, the United States and Colombia. Revenues for the three months ended March 31, 2019 and long lived assets (net of depletion, amortization, and impairments) as of March 31, 2019 attributable to each geographical area are presented below:

	Three Months Ended March 31, 2019		As of March 31, 2019
	Revenues		Long Lived Assets, Net
United States	$	250,720	$	4,495,038
Colombia		—		2,323,563
Total	$	250,720	$	6,818,601

9

NOTE 4 – STOCK-BASED COMPENSATION EXPENSE

In 2008, the Company adopted the Houston American Energy Corp. 2008 Equity Incentive Plan (the “2008 Plan”). The terms of the 2008 Plan, as amended in 2012 and 2013, allow for the issuance of up to 6,000,000 shares of the Company’s common stock pursuant to the grant of stock options and restricted stock.

In 2017, the Company adopted the Houston American Energy Corp. 2017 Equity Incentive Plan (the “2017 Plan” and, together with the 2008 Plan, the “Plans”). The terms of the 2017 Plan, allow for the issuance of up to 5,000,000 shares of the Company’s common stock pursuant to the grant of stock options and restricted stock. Persons eligible to participate in the Plans are key employees, consultants and directors of the Company.

The Company periodically grants options to employees, directors and consultants under the Plans and is required to make estimates of the fair value of the related instruments and recognize expense over the period benefited, usually the vesting period.

Stock Option Activity

A summary of stock option activity and related information for the three months ended March 31, 2019 is presented below:

	Options		Weighted-Average Exercise Price		Aggregate Intrinsic Value
Outstanding at January 1, 2019		4,978,832	$	0.77
Granted		—		—
Exercised		—		—
Forfeited		—		—
Outstanding at March 31, 2019		4,978,832	$	0.77	$	4,750
Exercisable at March 31, 2019		4,645,499	$	0.81	$	4,750

During the three months ended March 31, 2019, the Company recognized $12,449 of stock-based compensation expense attributable to the amortization of stock options. As of March 31, 2019, total unrecognized stock-based compensation expense related to non-vested stock options was approximately $59,000. The unrecognized expense is expected to be recognized over a weighted average period of 1.97 years and the weighted average remaining contractual term of the outstanding options and exercisable options at March 31, 2019 is 5.99 years and 5.78 years, respectively.

Shares available for issuance under the 2008 Plan as of March 31, 2019 totaled 0. Shares available for issuance under the 2017 Plan, as of March 31, 2019, totaled 4,291,667.

Stock-Based Compensation Expense

The following table reflects total stock-based compensation recorded by the Company for the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019			2018
Stock-based compensation expense included in general and administrative expense	$	14,219		$	25,349
Earnings per share effect of share-based compensation expense – basic and diluted	$	(0.00	)	$	(0.00	)

NOTE 5 – CAPITAL STOCK

Series A Convertible Preferred Stock

During the three months ended March 31, 2019, the Company paid dividends on Series A Convertible Preferred Stock in the amount of $32,550. At March 31, 2019, there were 1,085 shares of Series A Convertible Preferred Stock issued and outstanding.

10

Series B Convertible Preferred Stock

During the three months ended March 31, 2019, the Company paid dividends on Series B Convertible Preferred Stock in the amount of $25,050. At March 31, 2019, there were 835 shares of Series B Convertible Preferred Stock issued and outstanding.

Warrants

A summary of warrant activity and related information for 2019 is presented below:

	Warrants		Weighted-Average Exercise Price		Aggregate Intrinsic Value
Outstanding at January 1, 2019		50,000	$	0.55
Issued		—		—
Exercised		—		—
Expired		—		—
Outstanding at March 31, 2019		50,000	$	0.55	$	—
Exercisable at March 31, 2019		25,000	$	0.55	$	—

During the three months ended March 31, 2019, the Company recognized $1,770 of stock-based compensation expense attributable to the amortization of warrants. As of March 31, 2019, total unrecognized stock-based compensation expense related to non-vested stock warrants was approximately $8,000. The unrecognized expense is expected to be recognized over a weighted average period of 2.76 years and the weighted average remaining contractual term of the outstanding warrants and exercisable warrants at March 31, 2019 is 2.76 years and 2.76 years, respectively.

NOTE 6 - COMMITMENTS AND CONTINGENCIES

Lease Commitment

The Company leases office facilities under an operating lease agreement that expires October 31, 2022. The implementation of ASU 842 resulted in a right of use asset of $339,795 and related lease liability of $381,820 as of March 31, 2019. During the three months ended March 31, 2019, the operating cash outflows related to operating lease liabilities of $20,130 and the expense for the right of use asset for operating leases was $18,190. As of March 31, 2019, the Company’s operating lease had a weighted-average remaining term of 3.5 years and a weighted average discount rate of 12%. As of March 31, 2019, the lease agreement requires future payments as follows:

Year	Amount
2019	$	96,360
2020		130,717
2021		133,087
2022		112,551
2023		—
Total future lease payments		471,910
Less: imputed interest		(90,090	)
Present value of future operating lease payments		381,820
Less: current portion of operating lease liabilities		(87,812	)
Operating lease liabilities, net of current portion	$	294,008
Right of use assets	$	339,795

Total base rental expense was $32,175, and $30,150 for the three months ended March 31, 2019 and March 31, 2018, respectively. The Company does not have any capital leases or other operating lease commitments.

NOTE 7 – SUBSEQUENT EVENTS

2019 At-the-Market Offering

In May 2019, the Company entered into an At-the-Market Issuance Sales Agreement (the “Sales Agreement”) with WestPark Capital pursuant to which the Company may sell, at its option, up to an aggregate of $5.2 million in shares of common stock through WestPark Capital, as sales agent. Sales of shares under the Sales Agreement (the “2019 ATM Offering”) will be made, in accordance with one or more placement notices delivered by the Company to WestPark Capital, which notices shall set parameters under which shares may be sold. The 2019 ATM Offering was made pursuant to a shelf registration statement by methods deemed to be “at the market,” as defined in Rule 415 promulgated under the Securities Act of 1933. The Company will pay WestPark a commission in cash equal to 3% of the gross proceeds from the sale of shares in the 2019 ATM Offering. Additionally, the Company reimbursed WestPark Capital for $18,000 of expenses incurred in connection with the 2019 ATM Offering.

In May 2019, through the date hereof, the Company sold an aggregate of 100,000 shares in the 2019 ATM Offering and received proceeds, net of commissions, of $24,356.

11

ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Information

This Form 10-Q quarterly report of Houston American Energy Corp. (the “Company”) for the three months ended March 31, 2019, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. To the extent that there are statements that are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement, where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished.

The actual results or events may differ materially from those anticipated and as reflected in forward-looking statements included herein. Factors that may cause actual results or events to differ from those anticipated in the forward-looking statements included herein include the Risk Factors described in Item 1A herein and in our Form 10-K for the year ended December 31, 2018.

Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We believe the information contained in this Form 10-Q to be accurate as of the date hereof. Changes may occur after that date, and we will not update that information except as required by law in the normal course of our public disclosure practices.

Additionally, the following discussion regarding our financial condition and results of operations should be read in conjunction with the financial statements and related notes contained in Item 1 of Part 1 of this Form 10-Q, as well as the Risk Factors in Item 1A and the financial statements in Item 7 of Part II of our Form 10-K for the fiscal year ended December 31, 2018.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. We believe certain critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements. A description of our critical accounting policies is set forth in our Form 10-K for the year ended December 31, 2018. As of, and for the three months ended, March 31, 2019, there have been no material changes or updates to our critical accounting policies.

Unevaluated Oil and Gas Properties

Unevaluated oil and gas properties not subject to amortization, include the following at March 31, 2019:

	March 31, 2019
Acquisition costs	$	141,318
Development and evaluation costs		2,317,574
Total	$	2,458,892

The carrying value of unevaluated oil and gas prospects above was primarily attributable to properties in the South American country of Colombia.  We are maintaining our interest in these properties.

Recent Developments

Drilling Activity

During the quarter ended March 31, 2019, we commenced drilling operations on the Frost #1H well in Yoakum County, Texas, reached total depth of approximately 10,000 feet, including an approximately 4,800-foot horizontal leg, set casing on the well and commenced construction of production facilities. Fracturing of the well is anticipated to commence in the second quarter of 2019. Other than operations on the Frost #1H well, no drilling operations were ongoing at March 31, 2019.

12

During the quarter ended March 31, 2019, our capital investment expenditures totaled $49,651, principally relating to Reeves County, Texas.

Our operator in Colombia is continuing discussions with federal and local officials in order to either secure necessary permits and drill on our Serrania concession or to secure compensation for the value of, and our investment in, the concession. Pending resolution of such discussions, no drilling activities are presently contemplated on our Colombian concessions.

2019 At-the-Market Offering

In May 2019, we entered into an At-the-Market Issuance Sales Agreement (the “Sales Agreement”) with WestPark Capital pursuant to which we may sell, at our option, up to an aggregate of $5.2 million in shares of common stock through WestPark Capital, as sales agent. Sales of shares under the Sales Agreement (the “2019 ATM Offering”) will be made, in accordance with one or more placement notices delivered to WestPark Capital, which notices shall set parameters under which shares may be sold. The 2019 ATM Offering was made pursuant to a shelf registration statement by methods deemed to be “at the market,” as defined in Rule 415 promulgated under the Securities Act of 1933. We will pay WestPark a commission in cash equal to 3% of the gross proceeds from the sale of shares in the 2019 ATM Offering. Additionally, we reimbursed WestPark Capital for $18,000 of expenses incurred in connection with the 2019 ATM Offering.

In May 2019, through the date hereof, we sold an aggregate of 100,000 shares in the 2019 ATM Offering and received proceeds, net of commissions, of $24,356.

Results of Operations

Oil and Gas Revenues. Total oil and gas revenues decreased 67% to $250,720 in the three months ended March 31, 2019, compared to $754,157 in the three months ended March 31, 2018. The decrease in revenue was due to decreased production volumes attributable to our Reeves County wells and an adverse change in commodity pricing, including a 28% decrease in crude oil prices realized and a 27% decrease in natural gas prices realized.

The following table sets forth the gross and net producing wells, net oil and gas production volumes and average hydrocarbon sales prices for the quarters ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019		2018
Gross producing wells		10		10
Net producing wells		0.98		0.98
Net oil production (Bbl)		3,969		7,978
Net gas production (Mcf)		24,810		63,409
Average sales price – oil (per barrel)	$	43.79	$	60.85
Average sales price – natural gas (per Mcf)	$	3.08	$	4.24

The decrease in production reflects natural decline in production volumes from our Reeves County wells.

The change in average sales prices realized reflects bottlenecks in transportation/delivery capabilities in the Permian Basin which adversely affected commodity pricing.

Oil and gas sales revenues by region were as follows:

	Colombia		U.S.		Total
2019 First Quarter
Oil sales	$	—	$	173,777	$	173,777
Gas sales	$	—	$	27,788	$	27,788
NGL Sales	$	—	$	49,155	$	49,155
2018 First Quarter
Oil sales	$	—	$	485,432	$	485,432
Gas sales	$	—	$	268,625	$	268,625

Lease Operating Expenses. Lease operating expenses decreased 43% to $149,227 during the three months ended March 31, 2019 from $263,285 during the three months ended March 31, 2018. The change in total lease operating expenses was attributable to reduced severance taxes due to lower sales. Lease operating expenses, by region were as follows:

	Colombia		U.S.		Total
2019 First Quarter	$	—	$	149,227	$	149,227
2018 First Quarter	$	—	$	263,585	$	263,585

The decrease in lease operating expenses was principally attributable to reduced severance taxes due to lower sales. We anticipate lease operating expenses to ramp up to levels consistent with regional costs as new wells are brought on line. 

Depreciation and Depletion Expense. Depreciation and depletion expense was $92,529 and $96,710 for the three months ended March 31, 2019 and 2018, respectively. The change in depreciation and depletion was due to natural decline in production volumes from the Reeves County wells.

13

General and Administrative Expenses (excluding stock-based compensation). General and administrative expense decreased by 44% to $235,732 during the three months ended March 31, 2019 from $421,724 during the three months ended March 31, 2018. The decrease in general and administrative expense was primarily attributable to a reduction in compensation expense following the termination of our chief executive officer in mid-2018.

Stock-Based Compensation. Stock-based compensation decreased by 44% to $14,219 during the three months ended March 31, 2019 from $25,349 during the three months ended March 31, 2018. The decrease was attributable to expiration of the 2008 plan.

Financial Condition

Liquidity and Capital Resources. At March 31, 2019, we had a cash balance of $446,380 and working capital of $566,321, compared to a cash balance of $755,702 and working capital of $895,366 at December 31, 2018.

Cash Flows. Operating activities used cash of $202,071 during the three months ended March 31, 2019, compared to $110,376 used during the three months ended March 31, 2018. The change in operating cash flow was primarily attributable to the decline in oil and gas revenues during the 2019 period (down 67%), partially offset by a reduction in operating expenses (down 45%).

Investing activities used $47,465 during the three months ended March 31, 2019, compared to $7,277 used during the three months ended March 31, 2018. The change in funds used by investing activities is attributable to infrastructure and security upgrades made in Reeves County during the 2019 period compared to the 2018 period when capital investments were limited to routine items.

Financing activities used $57,600 during the three months ended March 31, 2019, compared to $62,850 used during the three months ended March 31, 2018. Cash used in financing activities for both periods was attributable to dividends on our preferred stock.

Long-Term Liabilities. At March 31, 2019, we had long-term liabilities of $333,592, compared to $82,719 at December 31, 2018. Long-term liabilities at March 31, 2019 and December 31, 2018, consisted of a reserve for plugging costs and the long-term lease liability.

Capital and Exploration Expenditures and Commitments. Our principal capital and exploration expenditures relate to ongoing efforts to acquire, drill and complete prospects, in particular our Reeves County and Yoakum County acreage. Our principal capital and exploration expenditures during 2019 are expected to relate to drilling additional wells on our Reeves County acreage, drilling an initial well on our Yoakum County acreage and possibly opportunistic acquisitions of additional acreage in the Permian Basin. The actual timing and number of wells drilled during 2019 will be principally controlled by the operators of our Reeves County and Yoakum County acreage, based on a number of factors, including but not limited to availability of financing, performance of existing wells on the subject acreage, energy prices and industry condition and outlook, costs of drilling and completion services and equipment and other factors beyond our control or that of our operators.

During the three months ended March 31, 2019, we invested $49,651 for the acquisition and development of oil and gas properties, consisting of one-time security expenses in Reeves county. Of the amount invested, we capitalized $2,393 to oil and gas properties not subject to amortization and reduced net costs capitalized to oil and gas properties subject to amortization by $47,258. Capital investments during the three months ended March 31, 2019 were curtailed pending proposals of new drilling operations from the operators of our Reeves County and Yoakum County acreage.

As our allocable share of well costs will vary depending on the timing and number of wells drilled as well as our working interest in each such well and the level of participation of other interest owners, we have not established a drilling budget but will budget on a well-by-well basis as our operators propose wells. With the completion of sales lines and other infrastructure serving our Reeves County acreage and experience gained from drilling our initial wells, we anticipate that costs to drill and bring future wells onto production will decrease, and delays in bringing production on line will be minimized or eliminated, as compared to our experience in bringing our initial wells onto production.

We have incurred continuing losses since 2011, including a loss of $239,620 for the three months ended March 31, 2019 and $251,000 for the year ended December 31, 2018. However, during 2018, we raised, net of offering costs, approximately $747,000 in our ATM offering, and substantially reduced our general and administrative costs, increased revenues, and, during the year ended December 31, 2018, generated approximately $361,000 from our operating activities, thereby mitigating going concern considerations. Further, as of March 31, 2019, we have a cash balance of approximately $446,000 and working capital of approximately $566,000.

14

Our principal capital and exploration expenditures during 2019 are expected to relate to drilling an additional well on our Yoakum County lease and, possibly, on our Reeves County acreage. The operator in Yoakum County has committed to drill a second well during 2019 at an approximate cost to us of $325,000. We believe that we have the ability to fund our cost for such a well from cash on hand. The new operator of our Reeves County wells has not yet communicated definitive plans to drill an additional well on that acreage in 2019. If they proceed with drilling plan for an additional well, we may require additional capital to participate in the drilling of that well. We believe that we has sufficient cash on hand to fund our expected drilling operations and our operations for the twelve months following the issuance of these financial statements.

Given the ongoing delays in our operator’s proposing new wells in Reeves County, we continue to actively seek opportunities to acquire additional acreage or other strategic transactions with a view to adding scale to our operations.

In order to fund our estimated drilling and completion costs of additional wells in Reeves County, our costs of any new acquisition or other strategic transactions, and possibly our costs of drilling and completion of additional Yoakum County wells, we expect that we will be required to raise additional capital. In the event that we do require additional capital to fund our share of costs for drilling wells during 2019, we expect that we would seek additional capital from one or more sources of additional sales of shares in our 2019 ATM Offering and private sales of equity and debt securities.

While we may, among other efforts, seek additional funding from “at-the-market” sales of common stock, and private sales of equity and debt securities, we presently have no commitments to provide additional funding, and there can be no assurance that we can secure the necessary capital to fund our share of drilling, acquisition or other costs on acceptable terms or at all. If, for any reason, we are unable to fund our share of drilling and completion costs and fail to satisfy commitments relative to our interest in our acreage, we may be subject to penalties or to the possible loss of some of our rights and interests in prospects with respect to which we fail to satisfy funding commitments and we may be required to curtail operations and forego opportunities.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements or guarantees of third party obligations at March 31, 2019.

Inflation

We believe that inflation has not had a significant impact on operations since inception.

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk

The price we receive for our oil and gas production heavily influences our revenue, profitability, access to capital and future rate of growth. Crude oil and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the markets for oil and gas have been volatile, and these markets will likely continue to be volatile in the future. The price we receive for production depends on numerous factors beyond our control.

We have not historically entered into any hedges or other transactions designed to manage, or limit, exposure to oil and gas price volatility.

15

ITEM 4 CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation as of March 31, 2019 of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of March 31, 2019. Such conclusion reflects the 2013 departure of our chief financial officer and assumption of duties of principal financial officer by our chief executive officer and the resulting lack of segregation of duties. Until we are able to remedy these material weaknesses, we are relying on third party consultants and our accounting firm to assist with financial reporting.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the quarter ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 6 EXHIBITS

Exhibit Number	Description
31.1	Certification of CEO and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of CEO and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

16

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned thereunto duly authorized.

	HOUSTON AMERICAN ENERGY CORP.
Date: May 15, 2019
	By:	/s/ James Schoonover
		James Schoonover
		Interim CEO and President (Principal Executive Officer and Principal Financial Officer)

17